--- begin forwarded text X-Sender: rah@mail.shipwright.com Mime-Version: 1.0 Date: Sun, 10 Aug 1997 11:05:54 -0400 To: e$@thumper.vmeng.com From: Robert Hettinga <rah@shipwright.com> Subject: e$: Carts, horses, other dromedaries, and the needle's eye of economics... Sender: <e$@vmeng.com> Precedence: Bulk List-Software: LetterRip 2.0 by Fog City Software, Inc. List-Unsubscribe: <mailto:requests@vmeng.com?subject=unsubscribe%20e$> List-Subscribe: <mailto:requests@vmeng.com?subject=subscribe%20e$> At 5:51 pm -0400 on 8/9/97, Somebody wrote:

I couldn't imagine more depressing news. The linking of internet + banking + fraud + organized-crime + offshore is precisely the kind of negative publicity which will set back e$ <...> horribly. I desperately wanna cry "Say it ain't so, Joe!" Oh, well. We move on. All the more reason to find some topflight Swiss, Belgian, Brit or German bankers to play. But, this will make _them_ doubly shy, too.

Agreed, but this Russia/Antigua thing is *really* not a big deal. Expatriation of assets is a completely orthogonal issue to the adoption of digital commerce and financial cryptography. That's because financial cryptography is about vastly improving the financial system, and not at all about killing the nation state to save our freedom. (I knew I'd get your attention with that one... :-)) Personally, I believe that the use of strong financial cryptography is the way that the internet will bring about the death of the nation-state, and I'll be extremely happy when that happens, just like a lot of industrialists rejoiced in the decline and fall of the aristocracy. However, the nation state will adopt financial cryptography and digital bearer settlement because it *has* to, economically, the same way that aristocracy adopted industrialism of its own economic necessity, an act which ushered in the nation-state and their own political demise. Like all technological progress, strong financial cryptography should enable you to do better transactions much cheaper. Technological progress cannot be commanded or stopped with a political decision, as any student of the Spanish inquisition, or Stalin, or Mao, will attest. Clearly, politics may be why you try to invent things in the first place. Diffie invented public key cryptography and Chaum invented blind signatures for political reasons, obviously, but their technologies themselves are value neutral. They're just facts, not political opinions. Remember what happened to government mandated technologies of the past, like synthetic fuel subsidies and the 'alternative' energy debacle -- or Lysenko. Paradoxically, even though people may invent things because of their politics, the unpredictablity of invention's outcome is such that it is in fact science -- reality -- that creates politics, and not the other way around. The political cart cannot be put before the economic and technological horse. So, at the risk of using a "utilitarian" argument ;-), discussions about the "politics" -- even the constitutionality -- of technology is a waste of time. This is particularly the case in discussions about the politics of financial cryptography, and, I daresay, all cryptography. It's the economics of the technology that matters, and since financial cryptography is by its very definition an economic technology, appeals to politics are even more irrelevant in discussing it. Cypherpunks knew this a long time ago, by resisting attempts to herd them into some kind of political action committee or another. "Cypherpunks write code", and all that. Of course, it doesn't keep us all from political kibbitzing -- or writing the occasional screed. :-). Just like any successful technology, if a politician gets in the way of financial cryptography, economic progress should eventually make so much money that it simply buys him out of the way. If it can't afford to to do that, then financial cryptography on public networks won't be adopted. Cynical it may be, it's still that simple. So, to my mind, the whole question of going offshore is now pretty much immaterial. We understand now how to do the trustee/boundry-layer work at any institional trustee bank. We're pretty much at the stage where we can walk right into the front door as a customer of giant institutional banks like State Street, or Banker's Trust, or Morgan Guarantee -- or even the Fed itself. Any bank who wants to hold reserve accounts in trust and to handle the funds transfer work on behalf of digital bearer cash users on the net, which any of these kinds of banks will do now already for clients like investment banks and mutual funds. We understand things well enough now to plug the net right into the existing financial system, on simple terms that it understands completely, without any legal problems whatsoever. And, because of this, we can also turn right around and do all the things we want to do on the net completely legally: blind signatures, anonymous transactions, and all. And, frankly, we'll be cheered by the financial and business community when we do, because we'll probably reduce the cost of cash transactions by 3 or 4 orders of magnitude, or more, not to mention creating *profitable* transaction sizes, from picodollar to teradollar, never before seen in the financial community. That's because the reason for adopting blind signature technology is not that you will pay extra to use anonymous bearer certificates, absolutely not. It's that because of their very anonymity, which enables you to trust someone who you can never know, digital bearer certificates will probably be much cheaper to use than non-anonymous digital cash or book-entry settlement methods, just like cash would be cheaper to handle if it weren't physical. Which is, of course, the point of blind signatures in the first place. So, if people who sell pornography, or have illegal businesses, want to get their money onto the net under newer bearer certificate market models like trustee/underwriter, they should be able to use their own banks to do so, like everyone else would. All criminals of any real stature have banks who know them and love having them as customers anyway. In addition, people will figure out other non-bank ways to get money onto the net if they want to, especially if there's something to do with it when the money gets there. I expect that there will be lots of net.smurfs who will continually find new and better ways to convert meatcash into digital cash, and law enforcement will have to use the same methods they use now, probably at the same success rates they now have, to stop that activity. Frankly, there's no difference between all that and the status quo anyway, so I really don't anticpate the market for forensic accountants to crash anytime soon. It doesn't matter anyway. All of this concern for potential illegal uses of e$ is in fact peripheral to the main chance, the central economic fact that strong financial cryptography on geodesic public networks, anonymity and all, is going to revolutionize finance and it thus *will* end up legal in its own right, whether it is or not today in your particular jurisdiction. The potential for criminal use of financial cryptography is simply noise compared to the techtonic economic benefit derived from having a ubiquitous geodesic economy, and frankly, most people in the central bank and economic strategy business know this. Ironically, these denizens of large central bureaucracies are turning into some of the biggest behind the scenes cheerleaders of the technology of financial cryptography. They understand that a nation state which makes the mistake of criminalizing or even controlling financial cryptography (and thus any strong cryptography at all) will go the way of all the nations which ignored the very industrialism which made them the powers they are now. Just like the inquisition killed Spain as a world power when it killed science (and thus literacy) in the name of religeon, effectively exiling it's entire intellegencia to Amsterdam and London and Geneva, so too will any nation state kill itself if it ignores internet bearer settlement. Except that the "country" the money goes to will not be someplace like Antigua, but the very net itself, which is everywhere and nowhere, all at once. Fortunately, we don't even have waste our breath making that argument. We just need to develop the technology on the critical path, which means that our business as developers and sellers of financial cryptography products is to create the ability for people to spend money on the net with as little concern as possible for who they are, biometrically. The cheapest way to do that right now is to use a certificate purchaser's existing bank to authenticate them, coupled with some combination of back-channel, and eventually internet-tunneled, automatic teller network and ACH/Fedwire transactions, all of which gets meatspace money in and out of a trustee's reserve account. This will solve all our authentication issues and make the user's money convertable into digital bearer certificates, all with no great mental leaps from the banking -- or regulatory -- communities. All the underwriter sees is an authorization from the trustee to issue certificates, and then anonymous certificate exchanges after that. All the trustee sees is authorization and a promise from the purchaser's bank to wire funds to cover what for all intents and purposes is an ATM withdrawl. All the purchaser's bank sees is a request from an account holder equivalent to an ATM withdrawl or deposit. All the buyers and sellers see is money and goods. :-). Nobody knows who does what to whom, anymore than they do with handling and accounting for cash in meatspace, and every's happy. And, ironically, everyone's accountable enough to the regulatory authorities for the time being. If we let the existing banking system handle the authentication at the meat/net boundry layer in this fashion, all the feared jurisdictional and regulatory problems for digital cash and digital bearer certificate finance are instantly defined out of existance. Even FinCEN itself knows it can't police cyberspace if book entries are economically impossible there. They also know that they can do their jobs just fine for the time being by tracing money up to the net, and watching for it to come out somewhere else. Detective work will never go out of style. Fortunately for cryptoanarchists everywhere, financial assets will someday just stay on the net, because the net is where the information that feeds markets for financial assets will be in the first place, just like industrial assets ended up in cities because that's where the information to manuplate them was. The millenium will have arrived. To continue in the millenial vein, we can continue to render unto Caesar all the financial information he can force out of us in meatspace, because the "kingdom" of net is where all the real money will eventually be, and he can never go there. To beat our aforementioned and, only-apparently-defunct wagon-pulling dromedary anology with a rather large ironic stick, it will be easier to get a camel through the eye of a needle than it will be maintain a nation-state in a net economy. Even more fun, economic necessity dictates that the camel, or whatever other, say asinine, dromedary you have in mind, will have to build the needle's eye the rest of us will walk through, or they'll go out of business. Cheers, Bob ----------------- Robert Hettinga (rah@shipwright.com), Philodox e$, 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' The e$ Home Page: http://www.shipwright.com/ --------------------------------------------------------------------- Where people, networks and money come together: Consult Hyperion http://www.hyperion.co.uk info@hyperion.co.uk --------------------------------------------------------------------- Like e$? Help pay for it! See <http://www.shipwright.com/beg.html> Or, for e$/e$pam sponsorship, <mailto:rah@shipwright.com> --------------------------------------------------------------------- --- end forwarded text ----------------- Robert Hettinga (rah@shipwright.com), Philodox e$, 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' The e$ Home Page: http://www.shipwright.com/